Professor of Energy and Climate Policy at Oxford University │ Senior Associate at Cambridge University │ Board Member │ LinkedIn Top Voice │ FEI │ FRSA
NEW RESEARCH: Together with Jaap Burger at the Regulatory Assistance Project (RAP), we analysed 480 smart tariffs and services across Europe — a threefold increase since our 2021/2022 study. The findings reveal how Europe’s electricity markets are evolving to enable flexibility and support decarbonisation through smart electrification of transport and heating. What we found: 1) Dynamic time-of-use (ToU) pricing dominates, accounting for 304 tariffs. 2) Other forms include static ToU, balancing mechanism/TSO-based signals, local network/DSO signals, and other dynamic inputs such as renewable energy share or local solar generation. 3) Germany, the UK, and the Netherlands host the highest number of smart tariffs. 4) Countries with higher EV adoption tend to offer more smart tariffs, while correlations with heat pumps and smart meters are less direct. Full paper open access here https://lnkd.in/eRMPW4WM
New Banque de France blog post on “𝗲𝗻𝘁𝗿𝗮𝗹 𝗯𝗮𝗻𝗸 𝗱𝗶𝗴𝗶𝘁𝗮𝗹 𝗰𝘂𝗿𝗿𝗲𝗻𝗰𝘆: 𝘁𝗵𝗲 𝘀𝗼𝘃𝗲𝗿𝗲𝗶𝗴𝗻𝘁𝘆 𝗰𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲.” The rapid digitization of payments poses a dual challenge to the sovereignty of the Euro area: external and internal. The 𝗲𝘅𝘁𝗲𝗿𝗻𝗮𝗹 𝗰𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲 stems from our dependence on non-European payment services (the Visa-Mastercard duopoly, ApplePay-type applications, stablecoins linked to the US dollar). This first challenge is easy to understand. The 𝗶𝗻𝘁𝗲𝗿𝗻𝗮𝗹 𝗰𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲 is more difficult to grasp. Today, in the world of legal activities, it makes no difference to me whether I receive a payment in the form of banknotes or a bank transfer. In both cases, “central” currency (issued by the central bank) is transferred: directly via the banknote, or indirectly via the interbank transfer. And I can always convert the money received in my account (commercial money) into banknotes (central money) at a rate of 1 to 1. If my bank does not have enough cash, it can obtain it from the central bank by pledging high-quality assets. In addition, I benefit from deposit insurance up to €100,000. Distributed ledger technology now enables low-cost payments, particularly cross-border payments. This is a great innovation. However, the link with central bank money has been broken: exchange at a rate of 1:1 is not guaranteed by design. There is therefore a risk of monetary fragmentation, as was the case in the United States in the 19th century. Faced with these challenges, the Eurosystem is deploying a two-pronged strategy: on retail payments with the digital euro, and on wholesale payments with the Pontes and Appia projects. The aim is to preserve European monetary sovereignty in a context of accelerated digitization of payments and tokenization of finance, promote the integration of financial markets, and ultimately enable an efficient and sustainable financing of the economy. https://lnkd.in/emF2ShXh
Considerations for the High Yield Bond Market: The BB-rated High Yield (HY) bond market has shown strong performance, with favorable news recently related to growth and inflation. Fundamentally, the companies represented in the HY Index have a favorable upgrade-to-downgrade ratio. BB-rated bonds constitute 50% of the HY market, distinguishing them from lower-rated B and CCC companies. BB HY bonds typically feature fixed rate, comparatively lower coupons, resulting in lower liability costs and more manageable debt service. In Contrast, the CCC-rated segment shows a concerning trend, with an upgrade-to-downgrade ratio below 0.5 (2x as many downgrades). The credit quality dispersion, shown in the chart below, reveals that BB vs. CCC-rated bonds trade at a spread margin of ~400 to ~1,200 bps, currently sitting inside of 750 bps. While CCC credits can generate substantial returns during robust economic growth in a low default rate environment, and have rallied with the market in recent days, CCC deterioration is most pronounced during distress and recession. During the first half of 2020, the BB-CCC spread differential reached 1,200 bps, and in 2016, CCC spreads were even wider. It is noteworthy that Europe is straddling recession, and the BB-CCC European HY bond spreads have recently widened to 1,400 bps, surpassing its peak in 2020. So despite, the recent rally in lower-rated HY bonds, caution is warranted for the weakest segment of corporate credit. The HY bonds historical default rate: BB’s 0.4% default rate, B’s 1.4% default, and CCC’s a stunning 14.3% historical default rate! During a recession, default rates tend to increase significantly from historical measures. Composition of HY Index: 50% BB, 39% B, 11% CCC. 1 year ago, the HY Bond Index had 1.2% default rate. Today, the trailing 12M default for the HY bond market is 2.6%. By Q2 2024, I expect the default rate for high yield bonds exceed 4%. Michael Schlembach, Marathon Asset Management’s PM for High Yield, expects default rates to increase in 2024, with peak default rates potentially reaching ~1.0%, ~3.0%, and >20%+ for BB, B, and CCC’s, respectively. The key will be to invest in the debt of companies with solid fundamentals and financial strength to navigate the pending downturn. If you believe as I do that an economic slowdown (potential recession) is likely in 2024, it might be best to focus on higher quality credits with robust operating businesses within the HY market. Ford serves as a prime example in the BB sector, having recently been upgraded to Investment Grade by S&P, marking it as the largest 'rising star'. Ford represents 2% of the HY index with $41 billion of bonds, its upgrade has spurred demand for other quality BB-rated bonds to replace it. While recent inflows have tightened BB spreads, I advise against trading based solely on the technicals, as this post is intended purely for informational purposes. U.S. HY rated BB vs. CCC Differential:
Co-Founder: AtticSalt | Built Operations Twice to $100M+ across 5 countries |Entrepreneur & Business Strategist | 15+ Years of experience working with 40 plus Global brands.
Stop copying competitor pricing. These 4 questions will tell you exactly what your specific customers will pay. When we first launched Attic salt, we spent n no of weeks trying to figure out a pricing strategy that will work. Attic Salt is democratising the fashion by bringing in value at a sharp price yet we have to maintain fair wages for our artisans and technicians who bring the garment alive with so much innovation,skill and dedication. Then I found the Van Westendorp Pricing Model, a simple 4 question method helps you understand how customers really see your price. Used by brands like Dropbox, HubSpot, and Mailchimp, the Van Westendorp model was developed by Dutch economist Peter Van Westendorp. Here's how it works… You ask potential customers four key questions about price: 📍At what price would this product feel too cheap to trust? 📍At what price would it feel like a good deal? 📍At what price would it start to feel expensive but acceptable? 📍At what point would it feel too expensive to buy? Now plot these answers on a graph. The intersection points reveal your: Indifference Price Point → where people are split between “cheap” and “expensive”Optimal Price Point → where hesitation from both ends is minimal Acceptable Price Range → your sweet spot for maximum traction When we used this model, we realized we were underpricing. Customers thought the product was “too affordable to be good.” We adjusted, and sales went up without changing a single feature. If you’re launching something new or entering an unfamiliar market, don’t guess. Use this model. Gut feelings are great for design. Not for pricing. Are you still trusting yours? #PricingStrategy#ConsumerInsights#D2CBrands#FashionBusiness
🚩A Crucial Market Is Sending Its First Warning Signal The Fed’s rate-hiking campaign could still weigh heavily on the economy, not least by making it harder for companies to access funding. But on the surface, investors seem confident that most US companies will generally be able to handle a slowdown without shutting down. That’s clear in the fact that the high-yield spread — that’s the extra yield that investors demand for buying riskier corporate bonds over safer government bonds — is still quite narrow. This indicates that investors aren’t too concerned about a spike in company failures, which would wipe out the interest from the riskier bond’s payments. But as always, the devil is in the details. Look deeper within the high-yield sector, and you’ll see investors are now asking for much higher rewards for holding the riskiest “junk bonds” – specifically those rated CCC (light blue line in the chart) – compared to the slightly less risky B-rated junk bonds (dark blue). Of course, it’s hardly surprising that CCC bonds boast higher yields than single B’s. They’re marginally riskier, after all. But historically, that difference has been slight. And over the past few months, the gap has been widening significantly. That suggests that investors are increasingly wary of defaults within the most speculative pockets. Now, that could be due to sector-specific concerns – CCC bonds are more common in media, consumer products, and high technology – or concerns that a tougher economic environment could wipe out companies with a weak spot financially. That's a worrying trend. As you can see in the chart, the last time we saw such a gap was right before the dot-com bubble burst. Investors poured money into highly speculative ventures during the tech boom, many of which carried CCC ratings. And as the sustainability of those businesses came into question, investors demanded much higher returns to offset the heightened risks. That led to a sharp spike in the yield spreads of CCC-rated bonds over B-rated bonds, a clear signal that investors saw potential for severe financial distress in those companies. That warning sign started flashing about a year before the bubble burst. A similar pattern unfolding today suggests that not everything is stable beneath the surface. The rise in CCC-rated yields indicates that the chance of defaults for the most speculative companies are rising, and is higher than the high-yield spread suggests. The risk from here is that the economy slows down more aggressively or borrowing costs stay high for longer than hoped, then these fears of defaults could spread to other companies – as it did before the dot-com bubble popped. More worryingly, that could bring trouble for private credit lenders, which loan to similarly smaller, debt-laden private companies. And since private markets may represent an important threat to our financial system, this is a risk worth watching. > Finimize
𝗛𝗼𝘄 𝘁𝗼 𝗱𝗲𝘁𝗲𝗿𝗺𝗶𝗻𝗲 𝗣𝗿𝗼𝗱𝘂𝗰𝘁 𝗣𝗿𝗶𝗰𝗶𝗻𝗴 𝗦𝘁𝗿𝗮𝘁𝗲𝗴𝘆 (𝗪𝗶𝘁𝗵𝗼𝘂𝘁 𝘁𝗵𝗲 𝗴𝘂𝗲𝘀𝘀𝘄𝗼𝗿𝗸) When it comes to deciding product’s pricing strategies, most of the PMs have 2 approaches: → Guessing work → Get overwhelmed by over 25 pricing strategies available in the market It makes the hard thing (pricing) even harder to decide and execute. But let me share a simple 3 step framework that would work for almost all the product pricing strategies. 1. 𝗖𝗼𝗹𝗹𝗲𝗰𝘁 𝗮𝗻𝗱 𝗮𝗻𝗮𝗹𝘆𝘇𝗲 𝗱𝗮𝘁𝗮 - The first step is to dive into the data. - Study competitor pricing, identify key profit margins, and identify customer segments that are most profitable for you at the current stage. - Look for insights that reveal how your product is perceived in the market. 👉 For instance, when Swiggy ventured into subscription models, it experimented with its Swiggy Super plan. By analyzing customer data, it found that users preferred free delivery perks. This insight allowed them to create a pricing model that not only increased subscriptions but also improved overall order volumes. ✅ So, pricing should always be a dynamic process. Don’t rely on a “set and forget” approach. Continuously engage with your pricing team and adjust based on market shifts and customer behavior. 2. 𝗙𝗼𝗰𝘂𝘀 𝗼𝗻 𝗰𝘂𝘀𝘁𝗼𝗺𝗲𝗿 𝘃𝗮𝗹𝘂𝗲 - Don’t focus solely on maximizing profits or sales volumes, think about the value your product delivers. Consumers today are willing to pay a premium for products they feel add significant value. 👉 Consider Tata Nexon EV, one of India's leading electric vehicles. Despite higher upfront costs compared to traditional fuel cars, it offers long-term savings and environmental benefits, which customers perceive as valuable and they are buying it. ✅ As a product manager, your job is to understand what drives consumer decision-making. Are they paying for premium features, better service, or convenience? The more you emphasize value, the stronger your pricing strategy will be. 3. 𝗗𝗲𝘃𝗲𝗹𝗼𝗽 𝗼𝗽𝘁𝗶𝗼𝗻𝗮𝗹 𝗽𝗿𝗶𝗰𝗶𝗻𝗴 𝗺𝗼𝗱𝗲𝗹𝘀 - Once you understand your costs and customer segments, develop three pricing strategies - conservative, aggressive, and a middle ground. - Think of it as a Goldilocks approach: one option may be too extreme, another too safe, but the third might hit the sweet spot. - This gives your business a range of options to test and optimize. 👉 Take Netflix India as an example. When it introduced the low-cost mobile-only plan, it allowed the company to penetrate deeper into the price-sensitive Indian market. By offering different pricing tiers, Netflix was able to serve both premium and budget-conscious users. 𝗜𝗻 𝗮 𝗻𝘂𝘁𝘀𝗵𝗲𝗹𝗹: Pricing is all about understanding what your customers are willing to invest in terms of time, energy, and money. What's your go-to strategy for product pricing?
NEW❗️🇫🇷 The Banque de France has published today a second report to share lessons learned from its #wholesale#CBDC experiments using #DLT. 👉Following the publication of an initial report in 2021 , the Banque de France is now releasing a new set of conclusions and lessons learned, covering the first and the second tranches of its wholesale central bank digital currency (wCBDC) experimentation programme, launched in March 2020 and comprising twelve experiments. 📍These findings contribute to the Eurosystem’s exploratory work announced in April 2023 which aims to investigate how wholesale financial transactions recorded on DLT platforms could be settled in central bank money. 📍Through these experiments, the Banque de France shows the operational feasibility and practical implementation of the three models it has conceptualised for issuing wCBDC directly on DLT: 📌(1) the interoperability model, 📌(2) the distribution model 📌(3) the integration model. 👉They all address key aspects of wholesale CBDC implementation and each model offers different capabilities and functionalities compared to the conventional systems, so they can be complementary rather than exclusive. These three models have been tested with different types of DLTs across a large spectrum of use cases, covering two key strategic areas: 📌(i) the tokenisation of finance and 📌(ii) the improvement of cross-border transactions. ❗️Eight key takeaways have emerged from these experiments: 📍1. Issuing a wCBDC, as a complement to a rCBDC, would contribute to the singleness of money by ensuring the anchoring value of CeBM for both retail and wholesale payments, and convertibility between the different forms of private money. 📍2. International cooperation and public-private partnerships remain a priority to converge towards a more globally inclusive and interoperable wCBDC framework. 📍3. Interoperability should be prioritised to ensure seamless data and transaction exchange between DLT-based and conventional infrastructures. 📍4. Climate-related concerns highlight the need to develop energy-efficient solutions in the design of wCBDCs. Key technical takeaways 📍5. Technological advancements related to DLT offer various means for central banks to maintain control over their wCBDC. 📍6. Central banks should remain technologically neutral while actively contributing to the adoption of common standards. 📍7. DLT could enhance the straight-through processing of trade and post-trade activities and contribute to overall financial stability. 📍8. Continued experiments at domestic and international level are essential to advance our analysis and our efforts to develop an operational framework through a learning-by-doing approach. #digitalassets#digitalassetscustody
Just back from Brussels with Ingvild Sørhus! We presented and debated our #EUETS whitepaper in the heart of EU policymaking, thanks to insightful exchanges with Commission and Parliamentarians and a great dialogue at the launch event organised by the ERCST - European Roundtable on Climate Change and Sustainable Transition. Highlights from our research: ▪ The market stability reserve (MSR) is evolving—no longer just managing oversupply, but now a crucial tool for flexibility as the European carbon market is significantly tightening. ▪ Current MSR setup delays supply interventions until 2035, then triggers price volatility with large, fixed releases. ▪ Fixed MSR releases create a step-function and ignore the increasing scarcity and shifting value of allowances in the MSR; dynamic, proportional releases are the answer to smoother prices. ▪ REPowerEU’s frontloaded auctions double down on EU ETS market tightening; by adjusting MSR capacity, the system gains flexibility without sacrificing climate ambition. ▪ Veyt’s modelling shows: earlier, dynamic MSR releases and REPowerEU-adjusted holdings mean greater price stability and stronger market resilience. Spreading releases over time keeps average prices steady and reduces year-on-year price swings. ▪ Expanding the MSR by safeguarding REPowerEU allowances can lower average prices (by up to 5%) and smooth volatility—especially with dynamic releases. Curious about the model and scenarios? Our whitepaper has all the details—just reach out with questions or feedback, always happy to connect! Download it here: https://lnkd.in/gXnmenQj#carbonmarkets#climatepolicy#netzero#MSR#REPowerEU